Cashed out my RRSP after moving to US on a TN

[Steam]

Last year I moved to California in February for a new job. I worked during January at my previous job in Canada, and for the rest of the year in the US. I had a relatively small amount of money in an RRSP (I'm young), and after hearing it was a pain to hold an RRSP in the US, I cashed it out in September, paying the 25% nonresident withholding tax. Without really understanding all the fine details, I figured I would be able to use foreign tax credits to cancel this out against my US employment income anyway. This may or may not have been the best thing to do, but anyway it's done now.

Now that it's tax time though, I'm confused as to what exactly I should file. Here's my current theory:

- Report the January Canadian-sourced income to the CRA, and nothing else. They don't care about my US income while I wasn't a resident, nor do they need to hear about the NR4 RRSP stuff since that's a one-time fixed tax.

- Report my US employment income and the full amount of the RRSP to the IRS. Claim foreign tax credit on the CRA's withholding tax.

But I'm a bit confused in the details. Does my RRSP income fall into the general category of income or as a lump-sum distribution? How much of the 25% tax do I get to claim as a credit: does the income ratio thing limit me (perhaps to the point that I'd be better off taking it as a deduction), and can I really take a credit against my employment income or am I limited to investments? And if I can't take it all, does it carry over into future years? This is probably all explained in http://www.irs.gov/publications/p514/ar02.html but it's hard to figure out what applies to me.

[nelsona]

Only the GAIN from after leving canada is taxable in US.

Almost all Cdns who collapse their RRSPs after moving to US, end up with a huge unusable portion of Cdn tax. Under no circumstances was your Cdn RRSP tax going to result in a credit against your US tax on your US wages, its simple doesn't work taht way.

So, you need to determeine what if any of your RRSP is taxable in US (ie any growth between the day you left and the day you sold up.

Since this will likely be miniscule, you should use the Cdn tax as a deduction on schedule A.

To your Q about what type of income? It is general limitation income, not passive, nit lump-sum.

[Steam]

Thanks for the advice. Like most people, my RRSP lost value during 2008. I'll use it as a deduction as you suggest. Can I also consider the loss a capital loss and subtract it from my income?

Another small question: I've been using TurboTax, which I've realized doesn't support 1040NRs. In some sense this doesn't matter, since I had only Canadian-sourced income prior to moving to the US, so my regular 1040 has everything the IRS cares about. Still, it seems weird that my return won't specify anywhere that I had a dual-status tax year. Do you think it's fine to go ahead and e-file, or should I instead mail it in with a note attached to that effect?

[nelsona]

Since you have never elected to defer income, you can use the capital losses (remeber, the losses are based on the TRUE cost basis of your investments, which was determined before moving).

As to your question about 1040, if you are going to use 1040, it can inly be dual-status (part-year), or it can be full year if you make a treaty election to be treated as an american AND report all your income from the whole year.

All software has ca checkbox that will put the fact that you are dual status on the top.

It''s unlikley you can e-file in your first year, and you do need to attach a statement for the firstpart of the year -- a 1040NR.